In June, Democratic congressman Henry Cuellar of Texas spoke at a conference where he declared he wanted to embed performance measures in each agency’s appropriations bill. What would this look like?

When Cuellar served in the Texas legislature, he saw how his state used performance information in the budget process. Appointed earlier this year to the House Appropriations Committee, he can finally bring this perspective to Washington in a real way. The next step is to convince his colleagues.

A decade ago, public policy professor Phil Joyce prepared a report for the IBM Center on ways the federal government could begin developing a performance budgeting approach. In that report, he optimistically observed, “The federal government has never been in a better position to make its budget decisions more informed by considerations of performance.” He identified ways performance could be linked at each stage of the budget development, decision-making and implementation process. It hasn’t yet happened, but states could serve as a model.

Based on a 2012 review, 40 states have adopted laws mandating the use of performance budgeting. Leading states include Michigan, Iowa, Texas and North Carolina. A number of cities also have adopted this approach. So it might be worthwhile to review what they do, and how lessons might be applied at the federal level.

The Key Ingredients

The concept of performance budgeting is not clearly defined. In fact, a 2003 article by Richard Young at the University of Southern California concludes: “There is no one single definition of performance-based budgeting (PBB). A review of the literature does, however, suggest what it means commonly. Most observers of -- and experts on -- public budgeting do agree that, generally speaking, PBB is the allocation of funds to achieve program­matic goals and objectives as well as some indication or measurement of work, efficiency, and/or effectiveness.”

Among the many variations that have evolved during the past decade, there is now outcome-based budgeting (used in Oregon and Michigan) and results-based budgeting (used in North Carolina). These approaches are more strategic, but still embrace the common definition of performance budgeting.

Based on observations of state and local use of performance budgeting, there are four insights that can help when implementing this approach:

Don’t separate budget and finance systems from the strategic goals of political leaders. These processes and systems need to be tied to the overall strategy of the city or state through committed leadership in both the executive and legislative branches. Baltimore City’s mayor Stephanie Rawlings-Blake, for example, has identified six priorities for the city and the municipal budget is organized around those priorities.

Use analytics and evidence-based approaches to inform budgeting priorities. This increases the likelihood that resources will be targeted to the root cause of a problem rather than its symptoms. In Virginia, for instance, evaluations have shown that third-grade reading levels are a strong predictor of future academic performance. As a result, the state has targeted additional budget resources to third-grade reading programs.

Budgets should be organized around the outcomes or initiatives in the strategic plan, and not around the traditional agencies and programs that populate the organizational chart. In Iowa, for example, former governor Tom Vilseck proposed a set of priorities, and agencies bid on the services they would contribute -- and at what cost -- to implement the priority. This information was then used to develop the budget proposal that was taken to the legislature.

States and localities need to create a budget and finance structure that can accommodate flexibility. This means creating common classification standards across budget, grant, contract and financial systems that can show how discrete inputs can be tied back to broader outcomes. This more technical requirement tends to be a prerequisite for providing budget and financial information in various formats to ensure accountability by various stakeholders.

The Texas Model

So, what does a performance budget look like? Let’s look at Texas, which inspired Cuellar’s efforts at the federal level.

The state has used performance budgeting for more than two decades. The governor prepares a strategic plan, uses it to prepare a budget proposal and the legislature adopts a biennial budget that includes specific levels of performance linked to the strategic plan. A 2005 IBM Center study by Joe Adams provides a good overview, beginning with the creation of a statewide strategic planning process in 1991 under Gov. Ann Richards and continued when Gov. George W. Bush took office in 1995. When Rick Perry became governor in 2000, he initially backed away from the details of the process, but the legislature continued its use of performance budgeting because it felt it was useful.

A recent guide that explains the process says the governor and the Legislative Budget Board prepare a mission statement and core principles, and then the 200 relatively independent state agencies each prepare a strategic plan. The most recent strategic plans, which cover 2011 to 2015, are used to develop agency budget proposals.

Each agency’s budget proposal includes:

A goal

An outcome (or results, or impact)

One or more strategies

One or more outputs (volume)

These are then followed with performance measure targets for each outcome and output. Information that is associated with traditional budgets is also included:

The Texas approach is only one example of many. Other states have adopted performance budgeting as well. A 2005 explanation of Michigan’s Outcome-Based Budgeting approach shows how goals are developed statewide rather than agency-by-agency, as done in Texas. In 2007, North Carolina began a Results-Based Budget initiative which is still being implemented at the agency level.

Since there are a variety of approaches among the states, as the Government Accountability Office has observed, there will be an opportunity to explore what works for different agencies at the federal level as Cuellar’s efforts move forward.

John M. Kamensky is a Senior Research Fellow for the IBM Center for the Business of Government. He previously served as deputy director of Vice President Gore's National Partnership for Reinventing Government, a special assistant at the Office of Management and Budget, and as an assistant director at the Government Accountability Office. He is a fellow of the National Academy of Public Administration and received a Masters in Public Affairs from the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

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